An interesting dynamic is taking place in the REIT sector.
The real estate ETF XLRE has largely managed to keep pace with the broader market this year, despite rising rates, contrary to conventional wisdom that the group will be under pressure. The XLRE ETF increased by more than 2% in 2021, while the S&P 500 increased by 4%.
Some ETFs for real estate investment funds performed even better – the VNQ Vanguard real estate ETF, for example, rose 4% in 2021.
“Typically, higher interest rates are an obstacle for REITs, as people can earn a more reliable income elsewhere. But, interestingly, before [Monday], REITs were actually beating S&P. We have received more than $ 1.5 billion in real estate ETFs so far this year, “Michael Arone, chief investment strategist at State Street Global Advisors, told CNBC’s” ETF Edge “on Monday.
Arone says that two factors are driving these gains – the first is the reopening of the market. Expectations that consumers will return to shopping malls and workers back to offices this year are high.
“The second thing is inflation, so rental values for rented properties and property values increase as prices rise, and that provides a reliable income above inflation, now more than double the dividend yield of S&P and of 10-year Treasury yields “
The XLRE ETF, which holds shares like American Tower and Crown Castle, was released on Monday.
Disclosure: Arone manages the ETF XLRE SPDR.
Disclaimer of Liability